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Caledonia Inv PLC (CLDN)

  Print      Mail a friend       Annual reports

Thursday 29 May, 2003

Caledonia Inv PLC

Final Results

Caledonia Investments PLC
29 May 2003

                           CALEDONIA INVESTMENTS PLC


        Preliminary Results for the 12 months ended 31 March 2003

•      Successful conversion to investment trust status achieved on 1 April
       2003; Caledonia classified in the AITC Global Growth sector

•      Substantial total shareholder return ('TSR') outperformance against FTSE
       All-Share Total Return

        - 62% outperformance over ten years (133% vs 71%)
        - 22% outperformance over five years (-7% vs -29%)

•      13% outperformance of NAV per share against FTSE All-Share over twelve

•      Top quartile performance over five and ten years (AITC Global Growth)

•      4% increase in annual dividend to 26p, marks the 36th year of continuous
       annual dividend growth

•      £60m invested; £36m of investment realisations

•      Strong balance sheet positions Caledonia to take advantage of attractive

Tim Ingram, Chief Executive, commented:

'This has been a milestone year for Caledonia and all of its shareholders with
the successful conversion to investment trust status from April 2003.

Once again, we have produced a strong investment performance, outperforming our
benchmarks and maintaining our progressive dividend policy.

With our new status and proven long term investment skills, we believe
Caledonia's shares should have broader appeal to private investors.'

                                                                    29 May 2003


Caledonia Investments plc                   Tel: 020 7457 2020 (today)
Tim Ingram, Chief Executive                 Tel: 020 7802 8080 (thereafter)
Jonathan Cartwright, Finance Director

College Hill                                Tel: 020 7457 2020
Tony Friend
Tom Allison

Chairman's statement


Our year to 31 March 2003 has heralded a further significant milestone in the
development of Caledonia Investments. The transition to investment trust status
as of 1 April 2003 was the culmination of many months of careful planning to
ensure that our successful long term approach to investment would not be
jeopardised. We believe that this has been successfully accomplished and was
effected at a time in the business cycle when values were subdued and the cost
of the transition was low. As values recover, which we must all believe will
happen, the benefit to shareholders from the company not paying tax on realised
gains should be considerable. More importantly, our strategy of taking
significant stakes in companies, both listed and unlisted, with a philosophy of
working constructively with management to build value for the longer term, will
remain the key feature of Caledonia's strategy and make it distinctive within
the investment trust sector.

The year under review, which has been a difficult one for investment markets,
has seen a continuation of Caledonia's long term investment outperformance,
though regrettably with a fall in the value of our shareholders' funds. Our
total shareholder return over both five and ten years continues to show
considerable outperformance with a cumulative change of -7% and +133%
respectively, which compares very favourably with the FTSE All-Share total
returns of -29% and +71%. We believe that this outperformance of 22% and 62% is
due to the distinctive Caledonia investment style referred to above.

Notwithstanding the good relative performance, our share price has declined over
the year under review by 24% from 847.5 pence to 642.5 pence, although this is
markedly less than the fall in the FTSE All-Share index of 32%. The share price
discount to net assets at 31 March 2003 was around 30%, but it is encouraging to
note that since announcing the achievement of our conversion to investment trust
status on 1 April 2003, this discount has narrowed to about 23% at 30 April
2003, being the date of our most recently published net asset value per share.
We hope that a broader understanding of Caledonia, the benefits of our new
status and a number of initiatives to which the chief executive refers in his
report may help further to narrow the discount.


We are proposing a final dividend of 18 pence per share bringing the total for
the year to 26 pence, compared with 25 pence for the previous year. This
increase of 4% reflects our aim of seeking to grow our annual dividend to
shareholders on a progressive basis, which we will have achieved for the past 36
years. This is a record of which we are very proud and, we believe, is almost
unique amongst FTSE 250 companies. We believe strongly that the substantial
shareholding in the company held by the Cayzer family over this period and
longer, and its participation in management, has contributed through ownership
stability to this creditable record.

The board

I now refer to a number of developments in relation to our board of directors.
Tim Ingram joined as chief executive on 10 June 2002 and has made a significant
contribution in his first year in this post. We have also been fortunate with
the appointment of two new independent non-executive directors. Mark Davies was
appointed in May last year and, more recently, David Thompson in March 2003. As
I have previously advised, Joe Burnett-Stuart retired on 31 December 2002 after
over 12 years as an independent non-executive director. His contribution has
been invaluable - the wisest of words given sparingly but unstintingly and
generously - and I thank him most warmly.


Most commentaries on investment outlook refer at the present time to the
difficulty of charting the way forward. Nevertheless, the opportunities in these
more difficult times should prove more attractive than usual. Caledonia, with
its developing management resource and strong balance sheet, is well placed to
move forward.

Chief executive's review


The main accomplishment during the year has been our transformation to
investment trust status. It is pleasing to note that our latest estimate of the
costs associated with conversion of £13.7m, most of which relates to tax, is
significantly lower than the £20m we previously indicated to shareholders. This
is referred to in more detail in the financial review. We believe we are meeting
all the requirements of our new status as from 1 April 2003 but, as for all
investment trusts, this can only be confirmed by the Inland Revenue after the
end of each financial year. We have now commenced reporting our unaudited net
asset value per share on a monthly basis and continue to look at further ways of
improving the flow of information to our shareholders. In addition, we have now
become a member of the Association of Investment Trust Companies ('AITC') and we
are now included in the AITC Global Growth sector.

The year ended 31 March 2003 has seen huge falls in share values, with the FTSE
All-Share index dropping by over 32% in that period. Throughout the year, we
have deliberately maintained a cautious and under-invested stance and ended the
year with £49m of cash and deposits, including £9m of cash held by operating
subsidiaries. Although net assets per share at 897 pence, after provision for
contingent taxation and costs of investment trust conversion, showed a most
unwelcome decline of 19%, this still represented an outperformance for the year
of around 13% against the FTSE All-Share index, which demonstrates the
resilience of our approach. This 19% decline in net assets per share has been
caused both by lower market prices for quoted investments, which at 31 March
2003 comprised 61% of our portfolio, and a lower valuation of unquoted
investments as a result of the market environment.

Our key financial aim continues to be to achieve consistently over the longer
term, using five and ten year measurements, a total shareholder return ('TSR')
in excess of the FTSE All-Share Total Return. Our outperformance, of 22% and 62%
respectively, is addressed in the chairman's statement. It is pleasing to note
that in relative terms this outperformance means that, for both these five and
ten year periods, Caledonia is in the top quartile of TSR performers when
measured against the AITC Global Growth sector. I believe, in particular, that
there are two distinctive characteristics inherent in Caledonia that lead to
this marked outperformance. The first is the strong deal-flow of investment
opportunities that are specifically presented to us as a result of our valuable
reputation as a long term supportive and constructively active investor. This,
coupled with our ability to assess a strong management team, enables us to
invest in more attractive situations. The second characteristic is our hands-on
constructive involvement with our investee companies. This, we believe, provides
more value creation than a passive investment style.

With our conversion to investment trust status, we consider that our shares
should be more attractive to private investors. This is because our financial
aims, and indeed track record, of consistent dividend increases and long term
outperformance, should be in line with the financial aspirations of many retail
investors. Furthermore, our policy of maintaining a spread of interests reduces
our overall risk profile. In addition, our new status and more regular
publication of our net asset values should make our business easier to
understand. In this context, we have been making a number of company
presentations to private client managers and brokers in order to broaden the
market for our shares and plan to develop further these forms of new investor
presentation and communication. There is in place a share savings plan suitable
for individual investors and our shares can be treated as qualifying investments
for the purpose of the PEP and ISA rules. We have also greatly improved our web
site to provide fuller information on the company and plan to develop further
these initiatives. It is also pleasing to note that during the year the number
of market-makers trading in our shares increased from five to eight, which
should also help to enhance the liquidity in our stock.

As I have mentioned above, one of our key competitive advantages is the strong
deal-flow of investment opportunities that are specifically presented to us as a
result of our valuable reputation as a long term supportive and constructively
active investor. We have estimated that during the past financial year, we have
given careful consideration to over 40 potential new investment situations -
this, of course, excludes the much higher number of investment opportunities
that we have declined at an early stage as not meeting our criteria. During the
year we made initial investments of £18m in 7 new situations, and we invested a
further £42m in existing situations. We have, therefore, continued to benefit
from a strong deal-flow of investment opportunities whilst maintaining a very
selective approach.

During the year, we reduced our holding in ICAP which raised £16m. Further cash
inflows of £20m were generated by selling a number of our smaller shareholdings,
enabling management to exercise a clearer focus on our principal investments.

We believe that one of our core skills is the identification and assessment of
management teams and, whilst we monitor the progress of all our investments on a
regular basis, the level of our day-to-day involvement depends on the
requirements of the investee company at each stage of its development. We
consider that another key competitive advantage is our active but supportive
approach. This demonstrates itself in many ways including provision of capital,
access to a wide range of management experience and to our considerable network
of contacts both to help to provide appropriate management resources and passing
on suitable investment or business opportunities. We have direct board
representation in most of our largest investments and maintain close contact
with all our major investments. We believe that our long term approach, combined
with our willingness to take a significant stake in investee companies, assists
in providing the stable environment within which their managements can execute
agreed business plans. Over time, this should enhance value to the benefit of
shareholders. We believe that this management style has helped us both to obtain
a strong deal-flow of good investment opportunities and to assist positively in
their productive development. This in turn has enabled us to achieve our net
asset value outperformance.


We start the new financial year in a strong position having completed all of the
necessary restructuring associated with our conversion to investment trust
status and the refinement of our strategy, as detailed in our last interim
report and the shareholder circular of 16 January 2003.

We continue to have a very healthy flow of investment opportunities, and at
prices that are significantly more attractive than in the recent past. We had
cash resources of £49m at 31 March 2003, and a further £62m of committed bank
facilities. We are, therefore, very well placed to take advantage of a good
investment environment. Since the beginning of our new financial year we have
increased our stake in Easybox, our Continental European self-storage business,
to 99.8% at a cost of £8m, added 1.8% to our holding in Paladin Resources at a
cost of £3.9m and taken a 3.8% stake in SVB, a UK listed Lloyds' underwriting
business, for £6m. We will continue to be highly selective in our investment
approach, and would only expect to draw on our credit facilities when we believe
conditions are beneficial for us to adopt a modestly geared stance.

We have started the year with over £460m of distributable reserves and, as an
investment trust, this should enable us to maintain our progressive dividend
policy for the benefit of shareholders for the foreseeable future, without
needing to temper long term gains for the sake of short term yield.

Objectives and strategy


Caledonia's aim is to achieve consistently over the longer term, using five and
ten year measurements, a total shareholder return in excess of the FTSE
All-Share Total Return, through a combination of capital growth and the
maintenance of a progressive dividend.

Our strategy is to focus on investing in, and then managing, a number of
significant stakes in companies and situations where we believe there to be good
opportunities for building value. Disposals of investments will be made at a
time and in a manner consistent with Caledonia's reputation as a supportive long
term investor combined with the requirement to maximise shareholder value.
Through holding a diversified portfolio, the company aims to maintain a medium
overall risk position.

Caledonia will remain alert to the changing opportunities in the market place
and the board will, where appropriate, amend its investment strategy in order to
build value for shareholders.


New investments

The guideline for the size of each new investment is £10m to £25m with a maximum
for any new investment of £50m. Normally, Caledonia aims to have an influential
minority stake but will, on occasion, be prepared to take a controlling interest
when we believe that this will maximise shareholder value. New investments may
be quoted or unquoted but with the policy that at least 50% of the total
portfolio is held in quoted securities or other liquid assets. When considering
an investment opportunity, particular care is spent in appraising the
capabilities and commitment of the management team in the investee company. The
anticipated total return from the investment, the strategy in relation to it,
and the overall risks, are carefully analysed as part of the investment process.

Caledonia is focused on a selected range of sectors. In those where it has
in-house knowledge and can add value to management of the investee company, it
will normally invest direct. However, where particular expertise is required,
which it does not have in-house, it will normally invest through third party
managed funds. Again, a core skill is the ability to assess the capabilities and
commitment of the management team and, in these cases, Caledonia will often seek
to obtain a significant stake in the management company itself, thereby
potentially enhancing returns to shareholders.

As mentioned above, Caledonia's policy also provides for investment in entities
with significant overseas activities. In order to ensure that the company can
effectively maintain active involvement with such investments, it has a
preference for new direct investments to be in entities whose senior management
are based in the United Kingdom.

Whilst the source of funding for new investments generally comes from
Caledonia's own resources, we may, at times, seek to enhance returns by taking
on moderate levels of gearing.

Management of investments

Caledonia seeks to work closely and constructively with the management of
companies that it has backed and to make available the considerable experience
of its own investment team, often through board representation. Its experience
in a range of sectors enables it to help management address the business issues.
Where appropriate, Caledonia assists investee companies through access to its
extensive network of business contacts and by working with management to pursue
growth opportunities.

To implement effectively its investment strategy, the company plans to focus on
a portfolio of around 30 to 40 principal investments. Caledonia's management
regularly reviews the progress and strategy for each investment, including the
returns and the timing of eventual disposal and, in addition, all major
investments are subject to a formal annual review by the board.

Disposals are made when it is considered that the funds released can provide
better returns through being invested elsewhere. In managing the timing and
manner of disposals, particular care is taken to protect our reputation as a
supportive long term investor.


Tight control is exercised over costs, notwithstanding Caledonia's active and
participative management style. Cost containment is significantly aided by our
policy of managing the large majority of our assets through our in-house
management team.

Competitive advantage

The board believes that now operating as an investment trust, together with the
strategy as outlined above, Caledonia has a number of significant competitive
advantages in relation to other investment companies. These competitive
advantages are considered to be as follows:

Favoured access to investment opportunities

Caledonia has a long established and valuable reputation as a supportive long
term investor and is neither constrained by time limits dictating realisation
policy nor by industry sector whims. Moreover, it has a strong track record for
taking a proactive approach to growing the businesses in which it invests. These
factors both attract a strong deal-flow of opportunities not always available to
others and enable Caledonia to be more selective in its choice of investments.

Experienced and stable management

Caledonia has a stable management team with good experience in influencing
constructively the management of investee companies. In addition, it works
proactively with investee company management to identify and promote business
growth opportunities. Although such an approach is common in the private equity
arena, it is much less so in the quoted company arena. This active approach is
designed further to improve shareholder return compared with the more passive
role often employed by investment companies.

Value creation

The large majority, by value, of Caledonia's investments are managed in-house,
thereby reducing third party fees and ensuring that performance gains on these
investments accrue to Caledonia's shareholders. In addition, in the cases where
assets are managed by third parties, it seeks to secure a stake in the asset
management business as part of the overall arrangements. This should provide the
opportunity for additional value creation from the management business itself,
further enhancing the potential returns.

Underpinning of dividends

The substantial level of distributable reserves that were maintained at
conversion to investment trust status should give Caledonia a very much greater
ability to pursue a progressive dividend policy for the foreseeable future than
is normally the case for investment trusts and without needing, in its selection
of investments, to temper growth opportunities for the sake of short term yield.

Investment analysis

Holdings of 1% or more of total assets

                                                                                                      of total
                                          Country of                                                    assets
Name                                                      Nature of business                Total            %
Close Brothers 1,2                        UK              Merchant banking                  123.8         18.9
Kerzner International 1,2                 Bahamas         Resorts owner/operator             83.4         12.7
British Empire Securities and
    General Trust 1,2                     UK              Investment trust                   47.9          7.3
Offshore Logistics/Bristow 1,2            USA             Helicopter services                30.2          4.6
The Sloane Club 2                         UK              Residental club owner/operator     24.7          3.8
Quintain Estates & Development 1          UK              Property holding/development       22.1          3.3
Paladin Resources 1                       UK              Oil and gas                        21.6          3.3
Rathbone Brothers 1,2                     UK              Fund management                    20.7          3.1
ICAP 1                                    UK              Interdealer broking                19.6          3.0
Aberforth Limited Partnership 1A 3        UK              Investment fund                    19.4          3.0
Polar Capital 2,4 and funds 3             UK/Ireland      Fund management/funds              18.7          2.9
Buckingham Gate 2                         UK              Property holding                   17.5          2.7
Amber Industrial 2                        UK              Specialty chemicals                14.7          2.3
ISIS Asset Management 1,2                 UK              Fund management                    13.2          2.0
Edinmore 2                                UK              Property trading                   12.9          2.0
Radio Investments 2                       UK              Local radio                        10.9          1.7
Sterling Industries 2                     UK              Engineering                        10.0          1.5
A G Barr 1                                UK              Soft drinks                         8.8          1.3
Meinl European Land 1,2                   Guernsey        Property investment                 8.6          1.3
Easybox 2                                 Luxembourg      Self storage                        7.5          1.1
Wallem 2                                  Cayman          Shipping services                   7.3          1.1
Ionian managed fund                       UK              Managed fund                        7.1          1.1
ISIS private equity funds                 UK              Investment funds                    6.9          1.1
Close Investment private equity funds     UK              Investment funds                    6.8          1.0
Other investments                                                                            69.2         10.5
Total investments                                                                           633.5         96.6
Net liquid assets 5                                                                          22.5          3.4
Total assets                                                                                656.0        100.0
Loan notes                                                                                  (4.8)
Shareholders' funds                                                                         651.2

1.   Equity securities listed on the UK or overseas stock exchanges.
2.   Board representation.
3.   Investment committee representation.
4.   Polar Capital and funds included £3.6m for the management company and £15.1m of funds. In the following
     sector distribution tables, the management company is included in the financial sector, £9.8m of the funds
     in the managed general funds sector and £5.3m of the funds in the technology sector.
5.   Includes £19.4m of net liquid assets held in subsidiary holding companies and £3.5m of own shares.

Asset distribution

                                                                                      £m                   %
Financial                                                                          189.0                28.8
Leisure and media                                                                  127.8                19.5
Industrial and services                                                            105.2                16.1
Property                                                                            80.9                12.3
Managed general funds                                                              110.7                16.9
Technology                                                                          12.1                 1.8
Other                                                                                7.8                 1.2
Net liquid assets                                                                   22.5                 3.4
                                                                                   656.0               100.0

                                                                                      £m                   %
Equities - quoted                                                                  400.1                61.0
Equities - unquoted                                                                104.9                16.0
Limited partnerships/funds                                                          66.5                10.1
Loans/notes                                                                         62.0                 9.5
Net liquid assets                                                                   22.5                 3.4
                                                                                   656.0               100.0

                                                                                      £m                   %
United Kingdom                                                                     486.0                74.1
Rest of Europe                                                                      37.6                 5.7
North America                                                                      124.8                19.0
Rest of the world                                                                    7.6                 1.2
                                                                                   656.0               100.0
Based on the country of incorporation of the investment.

                                                                                      £m                   %
Pounds sterling                                                                    488.3                74.4
US dollar                                                                          139.6                21.3
Euro                                                                                20.8                 3.2
Other                                                                                7.3                 1.1
                                                                                   656.0               100.0
Based on the currency of the investment.

Holdings by sector

                                                               Partner-                        Proport-
                                                                   ship                          ion of
                                                              interests      Loans                total
Name                                               Equities     & funds    & notes     Total     assets
                                              %          £m          £m         £m         £          %
Close Brothers 1                           17.7       123.8           -          -     123.8       18.9
Rathbone Brothers 1                        11.7        20.7           -          -      20.7        3.1
ICAP1                                       2.0        19.6           -          -      19.6        3.0
ISIS Asset Management 1                     6.3        13.2           -          -      13.2        2.0
Other investments                                      10.0           -        1.7      11.7        1.8
                                                      187.3           -        1.7     189.0       28.8
Leisure and media
Kerzner International 1                    20.7        83.4           -          -      83.4       12.7
The Sloane Club                             100        23.9           -        0.8      24.7        3.8
Radio Investments                          39.4        10.5           -        0.4      10.9        1.7
A G Barr                                    9.2         8.8           -          -       8.8        1.3
                                                      126.6           -        1.2     127.8       19.5
Industrial and services
Offshore Logistics/Bristow 1,2              5.9        14.9           -       15.3      30.2        4.6
Paladin Resources 1                         9.3        21.6           -          -      21.6        3.3
Amber Industrial                            100         2.1           -       12.6      14.7        2.3
Sterling Industries                         100         9.7           -        0.3      10.0        1.5
Easybox                                    49.9         1.6           -        5.9       7.5        1.1
Wallem                                     74.4         7.3           -          -       7.3        1.1
Other investments                                       6.9         4.2        2.8      13.9        2.2
                                                       64.1         4.2       36.9     105.2       16.1
Quintain Estates & Development 1            7.6        22.1           -          -      22.1        3.3
Buckingham Gate                             100        11.0           -        6.5      17.5        2.7
Edinmore                                    100         3.9           -        9.0      12.9        2.0
Meinl European Land 1                      30.1         8.6           -          -       8.6        1.3
Other investments                                      13.0         5.4        1.4      19.8        3.0
                                                       58.6         5.4       16.9      80.9       12.3
Managed general funds
British Empire Securities & 
General Trust 1                            19.9        47.9           -          -      47.9        7.3
Aberforth Limited Partnership1A            25.5           -        19.4          -      19.4        3.0
Polar Capital funds                                     4.8         5.0          -       9.8        1.5
Ionian managed fund                                       -         7.1          -       7.1        1.1
ISIS private equity funds                   6.7           -         6.9          -       6.9        1.1
Close Investment private equity funds       2.0           -         6.8          -       6.8        1.0
Other investments                                       8.8         4.0          -      12.8        1.9
                                                       61.5        49.2          -     110.7       16.9
Other investments                                       2.1         7.7        2.3      12.1        1.8
Other investments                                       4.8           -        3.0       7.8        1.2
Total investments                                     505.0        66.5       62.0     633.5       96.6
Net liquid assets                                                                       22.5        3.4
Total assets                                                                           656.0      100.0
Loan notes                                                                             (4.8)
Shareholders' funds                                                                    651.2
1.   Equity securities listed on the UK or overseas stock exchanges.
2.   The holding in Offshore Logistics included £6.4m of convertible loan stock.

Sector weighting against the FTSE All-Share index

                                                                                     Portfolio     All-Share
                                                                                     weighting     weighting
                                                                                £m           %             %
Financial                                                                    189.0        29.8          23.0
Leisure and media                                                            127.8        20.2          10.8
Industrial and services                                                      105.2        16.6          22.2
Property                                                                      80.9        12.8           3.8
Managed general funds                                                        110.7        17.5           2.3
Technology                                                                    12.1         1.9          10.3
Other                                                                          7.8         1.2          27.6
Total investments                                                            633.5       100.0         100.0

Sector definitions

Caledonia organises its investments into sector groups, based on the FTSE
classification scheme. The following table shows how the FTSE sectors are
allocated to the Caledonia sector groups. UK listed securities are classified
according to their standard listing sector. Other securities are classified
according to the FTSE sector they would probably be included in if they were
listed. Managed funds, including listed investment companies, are allocated to
the managed general funds sector if their investment strategy is not sector
specific and allocated to appropriate sectors if it is.

Financial                  Industrial & services      Managed general funds      Other
Banks                      Aerospace & defence        Investment companies       Electronic & electrical
Insurance                  Automobiles & parts                                       equipment
Life assurance             Chemicals                  Technology                 Food & drug retailers
Speciality & other         Electricity                Information technology     Food producers &
    finance                Engineering & machinery        hardware                   processors
                           Oil & gas                  Software & computer        Gas distribution
Leisure & media            Steel & other metal            services               General retailers
Beverages                  Support services           Telecommunication          Health
Leisure, entertainment     Transport                      services               Household goods &
    & hotels                                                                         textiles
Media & photography        Property                                              Mining
Tobacco                    Construction & building                               Personal care &
                               materials                                             household products
                           Forestry & paper                                      Pharmaceuticals &
                           Real estate                                               biotech

Investment review


The management team at Caledonia has a history of success in financial services.
Starting with our association with Gartmore Investment Management, the asset
management business which is now owned by the US based Nationwide Mutual
Insurance Company, the Caledonia team has been actively involved in the
development of many financial services businesses and therefore has an extensive
knowledge of the sector and its opportunities and understands well the key
management requirements. As a result, the weighting of this sector in our
investment portfolio is greater than that in the FTSE All-Share index and is our
largest sector by value.

Close Brothers
valuation: £124m; holding: 17.7%

Caledonia has been a supportive shareholder in Close Brothers for sixteen years.
This highlights both Caledonia's long term investment approach and its ability
to identify sound management. It is the success of this investment over time
that has led it to become our largest holding by value.

Given the difficult market conditions, Close Brothers' results for the year to
31 July 2002 and for the subsequent six months have demonstrated a robust
performance. The continuing strong growth of the banking division almost offset
the lower results from the asset management and corporate finance activities.
However, the further reduction in contribution from market-making, which is
still the second largest divisional contributor and earns a strong return on
capital, led to a decrease in annual earnings per share for the year to 31 July
2002 of 26%. Despite this, Close Brothers maintained its dividend over the year
at 26 pence per share. The recent six months results to 31 January 2003 are some
5% ahead of the comparable period, with banking continuing to grow and a steady
performance from corporate finance and market-making.

Rod Kent retired as managing director last October after 26 years of leadership
and leaves in place an excellent management team imbued with the strong Close
Brothers culture. The outstanding growth of the business over the period is a
fitting tribute to his contribution. He remains a non-executive director.

Our thorough understanding of this business and our appreciation of the quality
and depth of its management justifies the size of our holding. In addition to
our active involvement on the board, the long term relationship encourages an
interflow of investment ideas and proposals.

Rathbone Brothers
valuation: £21m; holding: 11.7%

Caledonia originally invested in Rathbones in 1995 as a result of our respect
for the management. Following the development of our understanding of their
business, we have actively supported their expansion. Rathbones is a leading UK
private client fund management business.

Against the background of substantial falls in equity markets, the 11% drop in
pre-tax profits for the year ended 31 December 2002 was a creditable
performance. The decline of 9% in funds under management to £5.3bn compared
favourably with the fall of 25% in the FTSE All-Share index over the same period
as a result of winning new clients. This reflects a culture which has enabled
the company to continue to attract new client managers who thrive in the
Rathbones' environment.

The private client fund management sector as a whole has suffered considerably
in recent times. However, Rathbones, with its strong management team, sound
financial position and emphasis on good client relationships, is well placed to
benefit from any sustained improvement in market conditions.

valuation: £20m; holding: 2.0%

Our 2% holding arises from our former much larger percentage shareholding in
Exco, one of the predecessor companies of ICAP.

ICAP has delivered highly successful results as the world's leading interdealer
broker. This is a remarkable performance following the difficulties of 11
September 2001 and its aftermath, which severely impacted its New York
operations. It has continued to develop the business with the recent
announcement of the completion of the BrokerTec acquisition. ICAP has been one
of our best performing large investments over the last year and we have taken
advantage of the high share price to reduce our holding down from 3.8% to 2.0%,
thereby realising some £16m.

ISIS Asset Management
valuation: £13m; holding: 6.3%

Caledonia has been a significant shareholder in ISIS, formerly Ivory & Sime and
Friends Ivory & Sime, since 1994 and during this period funds under management
have increased from £3bn to £60bn. A Caledonia director has been the chairman
since 1995 and we have thus been closely involved with the company's
development. ISIS is today ranked among the top ten UK active fund managers.

Although, as was to be expected during a period of declining markets, ISIS
reported lower earnings during the year ended 31 December 2002, it has
maintained its dividend payout. During 2002 it completed the acquisition of the
Royal & SunAlliance investment management business. This transformational deal,
which doubled funds under management, was followed by a rapid and successful
integration of the two businesses. This has been widely acclaimed in the
marketplace and leaves ISIS well placed for the future.

Polar Capital
valuation: £4m (£19m including Polar funds); holding: 24.6%

Polar Capital is a specialist fund management group that was set up two and a
half years ago with the specific support of Caledonia and illustrates our
ability to play a constructive role in the formation of a business. Caledonia
helped the founding managers in formulating the Polar Capital structure,
recruitment and obtaining the required FSA approvals. Caledonia owns 24.6% of
Polar Capital with management and staff owning the balance and is represented on
both the board of the management company and on the supervisory committees of
its funds.

Funds under management of $0.9bn have been maintained at the same level as at
last year end, strengthened by an inflow of funds for the Japanese and UK Market
Neutral hedge funds launched at the end of 2001 with the active support of
Caledonia, but offset by weakness in the technology funds. This is an
encouraging overall performance given the weakness of the technology sector,
with the Japanese and UK hedge funds providing excellent absolute returns of
some 9% in the year to 31 March 2003.

Polar continues to plan the launch of new funds and, whilst there continues to
be heavy pressure on profit margins among large and mid-sized asset managers,
the outlook for 'boutiques' which are highly focused, cost conscious and which
have exposure to the hedge fund sector, remains very promising.

Leisure and media

This is a sector where Caledonia has had long experience with involvement in the
hospitality industry, print and broadcasting. As a result of the knowledge and
sector understanding gained over a number of years, this is also a sector where
we have a weighting greater than that of the FTSE All-Share index.

Kerzner International
valuation: £83m; holding: 20.7%

Caledonia has been involved with the Kerzner management since the 1980s and
subsequently backed the management team when it set up Sun International Hotels
(now Kerzner International) in 1994.

The calendar year 2002 for Kerzner International ('KI') produced a sharp
recovery in underlying earnings per share from $1.48 to $2.11 following the
management's resourceful response to the events of 11 September 2001. This good
performance has also been carried over into the first quarter to 31 March 2003,
where underlying earnings have matched those of the corresponding quarter a year
earlier, despite the war in Iraq. KI's successful flagship operation, Atlantis
on Paradise Island, off Nassau in The Bahamas, has continued to be the mainstay
of the business and very recently the signing of a heads of agreement with the
Government of The Bahamas with respect to a $600m expansion was announced.

During the year, KI decided to segregate and develop its smaller five star
properties and launched a new brand - One&Only - to achieve this. A 50% interest
in La Palmilla resort on the Baja peninsular in Mexico was added during the year
and this resort will be approximately doubled in size to 175 rooms and
relaunched as a One&Only property early in 2004. A second property in the
Maldives will also join One&Only, bringing the total number of properties under
this brand to seven, with two new additions in prospect.

The year under review has seen the completion of the $1bn expansion by the
Mohegan Tribe of the Mohegan Sun Casino in Connecticut with the addition of a
1200-room hotel, an entertainment arena, retail facilities and a doubling of the
casino floor space. KI's 2.5% participation in revenues contributed $30m and
should continue to grow over the term of this arrangement until 2014. Overall,
the quality and geography of the KI operations have proved resilient in a
challenging year and the group continues to review many interesting

The Sloane Club
valuation: £25m; holding: 100%

Caledonia bought The Sloane Club in 1993 on a long lease, both as a property
investment and because of its trading potential. Having been enlarged and
modernised, it has traded well and established a strong reputation with a
following of some 3,700 members. More recently, The Sloane Club entered into an
agreement with The Cadogan Estate to manage sixteen flats nearby on short to
medium term lets.

In common with London hotels, The Sloane Club has suffered from the lack of
overseas visitors over the last year, but the continued support of the domestic
membership has softened the impact and, unlike many hotels, it continues to
trade profitably in a difficult market. Caledonia provides the chairman of The
Sloane Club and is actively involved in the management.

Radio Investments
valuation: £11m; holding: 39.4%

Caledonia has been a cornerstone investor in Radio Investments since 1989.
Throughout this period Caledonia has had board representation and, since 1999,
the chairmanship. Prior to investing in Radio Investments, Caledonia had
identified the UK radio industry as having significant growth potential.
Investing in Radio Investments provided Caledonia with an interest in an 11%
holding in Capital Radio, the UK's largest commercial radio operation. In 1998,
at a time when the larger UK radio stations were becoming very fully valued,
Radio Investments placed its stake in Capital Radio, realising a profit on cost
of over £40m, part of which was distributed to shareholders.

Radio Investments has since developed interests in 23 smaller radio stations and
has become a leader of the smaller station sector. It continued to grow revenues
strongly in its year to 30 September 2002, and this growth has been maintained
during the current year. The Government is planning further liberalisation of
the commercial radio environment and our major stake in Radio Investments
positions us well to benefit from these changes.

A G Barr
valuation: £9m; holding: 9.2%

Caledonia has had a longstanding association with the management of A G Barr.
The company manufactures and distributes Barr's IRN-BRU and other soft drinks.
It increased sales volume by 6% in the year to January 2003, despite the adverse
effect caused by the wet summer last year. Earnings per share rose 10%, helped
by internally generated efficiencies and the benefit from past capital
expenditure in labour saving equipment.

A G Barr continues to produce growth by developing its brands. It has a strong
position in the Scottish soft drinks market and has won the accolade of the
Number One Scottish Grocery Brand. Its marketing policy in England and Wales is
proving to be successful and led to a 16% increase in sales south of the border
in the year to January 2003.

During the year we increased our shareholding from 9.0% to 9.2%, over which
period the share price increased by 3%.

Industrial and services

Caledonia's experience in this sector dates back several decades through its
involvement in Sterling Industries and Amber. As a result of this experience we
are able to work and interface well with management teams in this sector.

Offshore Logistics/Bristow

valuation: £30m; holding: 5.9%

Caledonia has been connected with the offshore helicopter industry for many
years, starting with Bristow Helicopters, which itself has been associated with
the US-based helicopter operator, Offshore Logistics, a NYSE listed company,
since 1996. At that time, we made a profitable partial exit from Bristow and
reinvested a portion of the proceeds into Offshore Logistics.

In February of this year, Offshore Logistics reported diluted earnings per share
of $1.39 for the three quarters to 31 December 2002, which was roughly in line
with the comparative period. The worldwide reach of Offshore Logistics/Bristow
enabled it to offset reduced activity levels in the Gulf of Mexico and the North
Sea with an upturn in international operations principally associated with a new
contract in Nigeria.

Notwithstanding the recent consolidation of the offshore helicopter industry,
Offshore Logistics/Bristow comprises the world's largest operator servicing that
sector. Caledonia's strategic position as a major shareholder, with two
directors on the board, should ensure that it is well positioned to influence
events and benefit from further developments in the offshore oil and gas

Paladin Resources

valuation: £22m; holding: 9.3%

Paladin Resources is an oil and gas company specialising in the acquisition and
development of existing oil and gas fields. Caledonia's investment in Paladin
was the result of its association with the management team who had been
successful in developing Clyde Petroleum (acquired by Gulf Canada in 1997), in
which Caledonia had been a shareholder. As part of our strategy, Caledonia has
increased its shareholding over the year from 5.5% to 9.3%, during which period
the share price increased by 48%. In line with this strategy and our shareholder
relationship, Caledonia underwrote £13m of Paladin's December 2002 £42m share
placing and open offer at 66 pence per share, enabling us both to increase our
stake and to earn underwriting fees. We have further increased our holding to
11.1% since the year end.

2002 was an excellent year with pre-tax profits growing by 75% from £38m to
£66m. The business has been substantially increased in size through further
acquisitions including the Montrose/Arbroath acquisition from BP/Amerada. Both
reserves and production have grown healthily as has retained capital.

Amber Industrial
valuation: £15m; holding: 100%

Amber is a long-standing investment of Caledonia. It is a specialty chemicals
business focusing on silicone compounds, aerosol products and specialised
industrial consumables.

Overall profitability in Amber has been similar to the previous year at £2m
(before goodwill amortisation). Amber's investment over the last five years in
silicones is proving beneficial, with improved profitability in the UK and Italy
and good growth in the US, and we are hoping for most future value creation to
arise from the silicones side.

As part of our investment trust conversion process, Amber paid to Caledonia a
dividend of £3m. The reduction in value is due to both the cash dividend payment
and a reflection of the reduced share prices of similar listed companies.

Both the chairman and another non-executive director are Caledonia

Sterling Industries
valuation: £10m; holding: 100%

Sterling is an engineering group specialising in hydraulic valves, burners for
pollution control and thermal process engineering. The chairman and two other
directors are Caledonia representatives, and we have been actively involved in
implementing a number of restructuring and management changes, including the
disposal of non-core businesses. These measures have led to a reduced cost base
and a clearer focus.

Despite difficult economic conditions, and a further fall in sales, the year
under review has seen a welcome return to profitability following the actions
taken to lower costs, including a significant reduction in head count. Demand
remains subdued in the engineering sector generally and continuing measures are
being taken to lower production costs and position the business for better
market conditions, including the initiative of opening a small burner
manufacturing unit in China through a joint venture with a local partner.

As part of the investment trust conversion process, Sterling paid a dividend of
£3m to Caledonia. The valuation has also been adversely affected by the deficits
in its two final salary pension schemes largely caused by the fall in stock
market values over the past year.


valuation: £8m; holding: 49.9%

Easybox is a self-storage business currently operating in Italy and Spain,
established as a joint venture in 2000 with Orion Capital Managers. Our
involvement with the company arose from our backing the successful management
team who had previously developed the UK self-storage market under the
successful Abacus brand, in which Caledonia had a majority shareholding, and
which was sold at a substantial profit in 1998.

Trading has been encouraging and in line with expectations. A new facility was
opened in Barcelona in September 2002 and its initial trading has proved
promising.  A further facility was acquired in Milan, which should start trading
this summer, bringing the total to two in Spain and three in Italy. We continue
to look for additional sites in both of these countries.

Since the year end we have bought out Orion's 49.9% holding, at a cost of £8m.
This makes us the only shareholder alongside the management and will enable us
to have a more direct and active role in the company going forward.


valuation: £7m; holding: 74.4%

Caledonia has held a 74.4% economic interest in Wallem, the Hong Kong-based
shipping services group best known for its leading position in the
shipmanagement industry, since 1992.

During its year ended 30 September 2002, Wallem was affected by the downturn in
world economic markets, particularly in South East Asia, and recorded lower
revenues and profits, particularly from its shipmanagement division. Competition
remains fierce in this sector and the valuation of this investment has been
substantially reduced as a result of its lower earnings for the period. Efforts
are being made to improve profitability through revenue growth and cost cutting.


Caledonia has a long investment history in the property sector and benefits both
from its own in-house property knowledge and its ability to identify successful
management teams. We actively manage our interests by investing in quoted
property companies, by direct ownership of assets and by investing in
partnership with management.

The percentage of our portfolio in the property sector appears significantly
higher than for the FTSE All-Share index as, in common with many investors, most
of our property interests are in direct and unlisted property situations.

Quintain Estates & Development
valuation: £22m; holding: 7.6%

Quintain continues to hold a strongly reversionary portfolio and has a 49%
interest in the consortium that has completed an agreement to develop 190 acres
on the Greenwich peninsula. Subject to planning permission the consortium will
also lease the 43 acres including the Millennium Dome and surrounding areas for
use as a world class sports and leisure area. Quintain has also acquired Wembley
(London) Ltd, which will own and manage the Wembley Conference Centre and
Wembley Exhibition Halls, adjacent to the new Wembley Arena.

We have modestly increased our holding during the year, over which period the
share price increased by 4%.

Buckingham Gate
valuation: £18m; holding: 100%

Caledonia acquired 30 Buckingham Gate, located in the West End of London, in
2001 for its headquarters as the scale of our activities had outgrown the former
City office, which has now been sold. This property is considered a good long
term investment, has aided the efficient running of Caledonia and allowed us to
provide accommodation, and thereby close direct support, for some of our
start-up investments. The building comprises seven floors, of which four are
currently occupied by Caledonia and most of the remainder have now been let,
some to investee companies.

Despite the current weak London market, resulting in a fall in value on a
mark-to-market basis, we believe that the Victoria area has suffered less than
most and the general lack of good modern office space should result in renewed
demand once the economy improves.

valuation: £13m; holding: 100%

Edinmore is a wholly owned property trading company with a profit sharing
arrangement with the management. The company produced good profits last year
through identifying attractive market opportunities and generated profits of £2m
on a turnover of £14m. Edinmore has established an excellent reputation which
enables it to view opportunities not always available to others. Last year was
active and successful, and second phase developments from previous years are
expected to flow through to the current year. Caledonia provides loan funding
where appropriate and is actively involved in investment decisions.

Meinl European Land
valuation: £9m; holding: 30.1%

Meinl European Land (previously known as Central European Land) started in 1998
as a joint venture between Caledonia and Meinl Bank. Meinl European Land
purchased a property portfolio primarily consisting of supermarkets in The Czech
Republic and Hungary from Julius Meinl, the Austrian supermarket chain. Over the
past few years the quality of the portfolio has been improved and profits have
grown steadily. We are confident that the integration of both Hungary and The
Czech Republic into the European Union in the next 2 to 3 years will have a
positive effect on the company.

During the financial year, Meinl European Land was successfully introduced to
the Austrian Stock Exchange, via an IPO, raising cash for further development of
its portfolio.

Managed general funds

Our involvement in this sector enables us to have investments in situations
where we do not have appropriate resources in-house to maximise value for our
shareholders. Caledonia's particular expertise is to identify, support and
encourage the right asset management teams and often we seek to have a stake in
the fund management business. Our apparent weighting in excess of the FTSE
All-Share index arises as we have included in this sector our unlisted interests
in managed funds.

British Empire Securities and General Trust
valuation: £48m; holding: 19.9%

Caledonia has actively backed British Empire Securities ('BES') and its
management since 1991 when it bought a significant interest in BES and control
of its management company. At 31 March 2003 Caledonia held a 19.9% interest in
BES and, through its board representation, it has been closely involved since

Although BES has recently reported a slight underperformance against its
benchmark during the six months to 31 March 2003, its record over the longer
term has been outstanding. Over the past three years it has outperformed the
MSCI World Index by 33.6%, and over a five-year period BES is top of its peer
group of 26 Global Growth Trusts.

Over the years, the management of BES has been highly successful at identifying
undervalued asset situations, particularly in the UK investment trust sector and
among European holding companies, and we believe that the specialist skills
involved will continue to deliver superior returns.

Aberforth Limited Partnership 1A
valuation: £19m; holding: 25.5%

Caledonia was approached to be an investor in a limited partnership fund
launched by Aberforth Partners in March 2001. The fund's remit is to identify
undervalued smaller UK listed companies across a number of sectors and seek to
unlock value through influencing management in areas including business
composition (i.e. acquisitions and disposals), financing (i.e. debt/equity
balance) and public to private or other outright sale options.

Caledonia committed £25m to this £165m, 60% geared fund, of which the full
amount had been drawn down by 31 March 2003. During the year under review, £15m
was drawn down and, as a result of realised net gains, £3m distributed, to leave
a net investment of £22m. Caledonia is represented on the investment committee.

As at 31 March 2003 the fund had investments in twelve companies and although,
since launch, it had not achieved a positive absolute return, it outperformed
the FTSE All-Share Total Return index. Aberforth Partners has a strong track
record and reputation in the UK listed smaller companies sector and we believe
that there is further value to be achieved through a judicious choice of
investments which will benefit from Aberforth's approach.

Ionian managed fund
valuation: £7m; holding: n/a

The Ionian portfolio, which was started in 1995, is a bespoke portfolio of
shareholdings in UK listed smaller companies, which is actively managed by a
fund manager at Ionian Bank, well known to Caledonia. This portfolio has, over
the years, produced good returns, but is now being gradually liquidated in a
manner to maximise receipts.


Caledonia has deliberately maintained a cautious stance to this sector and we
are currently underweight compared with the FTSE All-Share index, with just 2%
of our total investments in this sector.

Our approach has been to back teams with experience in this area.

Financial review

During the year, Caledonia undertook a substantial restructuring to enable it to
comply with the requirements for authorised investment trust status as from 1
April 2003. This review describes the current and future effect of Caledonia's
conversion on the financial statements, in addition to reporting on the results
for the year. Although the company was not an investment trust during the year
under review, it will have been managed since 1 April 2003 in such a way as to
enable it to meet the requirements of investment trust status. Therefore, the
financial statements below have been augmented with information more commonly
associated with the publications of investment trust companies.

Presentation of the financial statements

Investment trust companies generally report under the Statement of Recommended
Practice - Financial Statements of Investment Trust Companies ('IT SORP'), as
revised and published by the Association of Investment Trust Companies ('AITC').
The IT SORP assumes, however, that an investment trust is also an investment
company and can take advantage of the special provisions given to investment
companies under company law and accounting standards. Caledonia is not an
investment company and in these circumstances the IT SORP states that an
investment trust should prepare its financial statements in accordance with the
normal rules contained in Schedule 4 to the Companies Act 1985 and accounting

Caledonia recognises, however, that presenting information that is comparable
with other investment trusts is important to investors. It therefore intends to
augment its financial statements with the information and disclosures required
by the IT SORP in respect of the performance of the holding company. This is
because the holding company balance sheet (unlike that of the group) can reflect
full net asset value and the movement in this figure is a key measure of
Caledonia's performance. A statement of total return on an IT SORP basis will be
presented to explain this movement.

In order to achieve this new presentation, a number of changes are necessary.
The company's accounting policy in respect of subsidiaries was changed during
the year, from carrying them at cost to carrying them at valuation, so that the
company balance sheet can reflect all the investments, including subsidiaries,
at valuation. A statement of total return for the company will be presented to
explain movements in the company's net asset value. Since Caledonia was not an
investment trust during 2003, the company statement of total return has been
prepared on a pro forma basis for this year and is not included in the audited
part of the 2003 financial statements. The company balance sheet and, from 2004,
statement of total return will be presented first in the financial statements,
as Caledonia believes that net asset value and its movement is the key
accounting measure by which the company should be assessed. In order to reduce
the difference between the company and consolidated balance sheets, Caledonia
changed its accounting policy in respect of associates from equity to investment
accounting, but was only able to do so on 1 April 2003, from which date it
became an investment trust company. Finally, the format of the consolidated
profit and loss account and consolidated statement of total recognised gains and
losses will be revised to make them more consistent with the publications of
other investment trusts required to prepare consolidated financial statements.

As Caledonia was not an investment trust company during the period under review,
the following sections of the financial review are presented as for former

Profit before tax

Overall, profit before tax for the year to 31 March 2003 totalled £23.6m,
compared with £8.2m reported last year. The operating loss for the year, which
comprised the results of trading subsidiaries as well as the costs of managing
the group's investment operations, was £9.4m, compared with £9.0m last year.

The results of trading subsidiaries rose to a £3.6m profit compared with a £1.3m
loss in 2002. Significant contributors to this movement were Sterling
Industries, which reported a £0.7m profit compared with a £0.4m loss last year,
and Edinmore, which made a £2.0m profit compared with £0.1m last year as a
result of increased property trading activity. In addition, the 2002 results
were adversely affected by the write off of £3.5m of capitalised goodwill
relating to the acquisition of Sterling Industries, compared with £1.7m of
goodwill written off in 2003 relating to an acquisition within the Amber group.

The cost of managing the group's investment operations, excluding an exceptional
amount of £4.0m related to the reorganisation of the group to enable Caledonia
to meet the requirements for investment trust status, amounted to £9.0m compared
with £7.7m last year. The reorganisation costs are discussed further below.
Depreciation rose to £0.9m from £0.4m last year as a result of a full year's
depreciation on Buckingham Gate. Employment costs rose marginally over the year
and £0.6m of exceptional irrecoverable VAT was written off.

The group's share of operating profit from associates rose slightly to £26.1m
from £25.2m last year. Last year's contribution of £3.1m from English & Scottish
Investors was not replaced, as our interest was sold in March 2002, losses of
£1.5m in 2002 from Artsworld Channels did not affect the year under review as
the operations of this business were wound down at the beginning of the year,
and Kerzner International's contribution increased by £2.5m. Amortisation of
goodwill on acquisition of associates was a charge of £0.4m this year compared
with a credit of £0.5m last year, due to the absence this year of £0.9m of
negative goodwill relating to English & Scottish Investors.

The book profit on sale of operations of £4.9m resulted mainly from £4.0m and
£2.5m profits on deemed disposals arising from dilution of our equity accounted
interests in Close Brothers and Meinl European Land respectively, as each
investee company issued new shares at a premium to net asset value in connection
with their own corporate activities.

Investment income of £8.7m compared with £10.8m in 2002, reflecting a £0.8m
reduction in Wallem's distribution this year, absence of the £0.9m income from
the JP Morgan Chase & Co loan notes sold in 2002 and £0.5m of rental income from
a property sold in 2002.

Interest receivable on short term deposits less interest payable on short term
funding was net £3.2m receivable this year, compared with £1.4m payable last
year. The company maintained net funds of some £40m during the year, compared
with the utilisation of debt facilities for most of 2002. The swing from net
short term debt in 2002 to net funding in 2003 was precipitated principally by
the cash receipts of £88.2m from the disposal of the company's interest in
English & Scottish Investors in March 2002. The group's share of associates'
interest payable dropped to £9.3m from £11.5m last year, also principally due to
the disposal of our interest in English & Scottish Investors, which was
previously equity accounted.

Other gains and losses

Realised gains net of losses for the year amounted to £17.1m. Realised gains
included £10.8m on the disposal of part of our ICAP stake, £4.7m on the sale of
our holding in Shell and £3.0m on the disposal of Northgate, partially offset by
a £2.6m loss on the redemption of our holding in the Amerindo Technology Growth
Fund. The overall movement in unrealised losses for the year of £75.7m reflected
the change in the equity markets over the year. Currency exchange differences
over the year of £15.9m reflected the 11% fall in value of the US dollar against
sterling, which affected the group's assets held in US dollar denominated


The total taxation credit (revenue and capital) for the year amounted to £2.8m,
compared with a £6.6m charge last year. The principal movements were a release
of the provision against unrecognised losses amounting to £17.9m and a £5.5m
charge associated with restructuring to enable the company to achieve investment
trust status, discussed further below. The £17.9m movement refers to the
satisfactory resolution of the use of bought-in capital losses, dating from a
prior period, against realised chargeable gains. This issue has now been
settled. Of the £27.1m provision previously booked in respect of this item,
£17.9m has been released and the balance transferred to creditors as at the year


An interim dividend of 8 pence per share has been paid and the directors have
recommended a final dividend of 18 pence per share, making a total of 26 pence
per share for the year at a cost of £18.8m. This is a 4.0% increase over the
total dividend for 2002 of 25 pence per share.

As part of the group restructuring to enable the company to qualify for
investment trust status, and after accruing £13.1m for the proposed final
dividend, distributable reserves of some £462m are included in the company
balance sheet at 31 March 2003.

Cash flow

The group's net funds at the year end were £43.2m compared with £67.1m at the
start of the year, a decrease of £23.9m. Significant outflows were incurred in
respect of investment and associate purchases totalling £60.1m and dividend
payments of £18.1m. Investment and associate purchases included £12.5m in the
Aberforth fund, £11.1m in Paladin Resources and £8.1m in Polar funds.
Significant inflows arose from investment and associate sales of £36.5m and
operating activities (including dividends from associates) of £21.5m. Investment
and associate sale proceeds included £15.8m from ICAP, £6.0m from Structural
Polymers and £4.9m from Shell.

Conversion costs

During the year, the group undertook a substantial reorganisation to enable the
company to comply with the requirements for investment trust status. Part of the
reorganisation entailed transferring ownership of investments to the company. To
preserve the company's distributable reserves, there was a capitalisation issue
of new deferred shares, followed by a Court approved reduction to cancel the new
shares issued.

The cost of conversion to investment trust status is estimated at £9.5m,
consisting of £4.0m in revenue costs and an estimated tax liability of £5.5m.
These costs are best estimates, subject to uncertainty centred principally upon
the outcome, to be determined, of discussions with the appropriate authorities
on certain aspects of the reorganisation.

The chief executive's report refers to conversion costs of £13.7m. This figure
is directly comparable with the estimate of £20.0m previously published.
Subsequently, part of the ICAP stake was sold and the estimated tax liability on
this disposal is £4.2m. The original £20.0m assumed that the whole of the ICAP
stake remained within the group and that the equivalent tax liability arising on
its transfer to Caledonia would be part of the conversion costs. For accounting
purposes, however, the tax on disposal of part of the ICAP stake is regarded as
tax on normal activities, not part of the conversion cost.

Pro forma company total return

for the year ended 31 March 2003

As explained in the financial review, Caledonia has augmented its financial
statements as an investment trust by including a statement of total return for
the holding company. Although not an investment trust for the year ended 31
March 2003, the following statement of total return illustrates how such a
statement might have looked had Caledonia been an investment trust for the whole

Year ended 31 March 2003                                                Revenue       Capital         Total
                                                                             £m            £m            £m
Gains/(losses) on investments
    Realised                                                                  -          17.1          17.1
    Unrealised                                                                -       (221.8)       (221.8)
                                                                              -       (204.7)       (204.7)
Income from investments                                                    20.0             -          20.0
    Management costs                                                      (8.3)             -         (8.3)
    Restructuring costs                                                   (4.0)             -         (4.0)
Return before finance costs and tax                                         7.7       (204.7)       (197.0)
Interest payable and similar charges                                      (0.2)             -         (0.2)
Return before tax                                                           7.5       (204.7)       (197.2)
Tax on ordinary activities                                                  1.5          12.5          14.0
Return attributable to shareholders                                         9.0       (192.2)       (183.2)
Dividends                                                                (18.8)             -        (18.8)
Transfer to reserves                                                      (9.8)       (192.2)       (202.0)

Return per ordinary share
    Basic                                                                 12.5p       -266.5p       -254.0p
    Adjusted                                                              18.0p       -256.9p       -238.9p

Dividend per ordinary share                                               26.0p             -         26.0p

The company statement of total return is derived from a combination of the
company profit and loss account and the company statement of total recognised
gains and losses, adjusted to reflect the estimated position if the company had
been an investment trust company throughout the year. In particular, investments
that were held by subsidiary undertakings for most of the year and transferred
to the company before the year end (or would have been so transferred if they
had not been realised during the year) are imputed to the company for the whole
of the year. Therefore, any investment income arising from those investments and
movements in valuation have been imputed to the company. Likewise, any costs
incurred by subsidiary investment holding companies, which are no longer
operating as such at the year end, have been imputed to the company. The effect
of the reorganisation carried out during the year in order to enable the company
to achieve investment trust status has been eliminated, except for the net costs
associated with undertaking the reorganisation.

Company balance sheet

at 31 March 2003

                                                                                         2003           2002
                                                                                           £m             £m
Fixed assets
Investments                                                                             656.4        1,031.0
Current assets
Debtors                                                                                   5.5           37.1
Short term deposits                                                                      38.9           56.9
Cash at bank and in hand                                                                  1.4            0.2
                                                                                         45.8           94.2
Creditors falling due within one year
Short term borrowings                                                                   (8.6)         (22.5)
Other creditors                                                                        (28.1)         (44.2)
                                                                                       (36.7)         (66.7)
Net current assets                                                                        9.1           27.5
Total assets less current liabilities                                                   665.5        1,058.5
Creditors falling due after more than one year
Long term borrowings                                                                    (4.8)          (4.8)
Amounts due to subsidiary undertakings                                                  (9.5)        (170.0)
                                                                                       (14.3)        (174.8)
Provision for liabilities and charges
Deferred taxation                                                                           -         (27.1)
                                                                                        651.2          856.6

Capital and reserves
Share capital and premium                                                                 5.3            5.4
Non-distributable reserves                                                              184.1          364.3
Distributable reserves                                                                  461.8          486.9
Total shareholders' funds                                                               651.2          856.6

Net asset value per ordinary share 1                                                     897p          1172p

1.  The 2002 net asset value per share figure is stated before deducting £46m,
or 63 pence per share, being the tax calculated as becoming payable had the
group realised its portfolio at 31 March 2002. This contingent tax has not been
provided in the accounts of the company. After deducting the calculated tax, the
net asset value per share was 1109 pence.

Consolidated profit and loss account

for the year ended 31 March 2003

                                                                                    2003              2002
                                                                                      £m                £m
Turnover                                                                           132.1             114.1
Operating loss                                                                     (9.4)             (9.0)
Share of operating profit of associates                                             26.1              25.2
Amortisation of goodwill on acquisition of associates                              (0.4)               0.5
Total operating profit                                                              16.3              16.7
Profit on sale of operations                                                         4.9             (6.2)
Profit on ordinary activities before investment income                              21.2              10.5
Income from investments                                                              8.7              10.8
Interest receivable                                                                  3.2               0.7
Interest payable                                                                   (9.5)            (13.8)
Profit on ordinary activities before tax                                            23.6               8.2
Tax on profit on ordinary activities                                               (5.7)             (5.1)
Profit on ordinary activities after tax                                             17.9               3.1
Minority interests (equity)                                                        (0.4)             (0.2)
Profit for the financial year                                                       17.5               2.9
Dividends                                                                         (18.8)            (18.2)
Loss charged for the financial year                                                (1.3)            (15.3)

Earnings per ordinary share
    Basic and diluted                                                              24.2p              3.8p
    Adjusted                                                                       28.3p             18.6p

Dividends per ordinary share                                                       26.0p             25.0p

Consolidated statement of total recognised gains and losses

for the year ended 31 March 2003

                                                                                    2003              2002
                                                                                      £m                £m
Gains/(losses) on investments
    Realised                                                                        17.1               7.9
    Unrealised                                                                    (75.7)            (36.4)
Exchange differences                                                              (15.9)               0.1
Share of results of associates                                                    (13.7)            (19.7)
Tax on gains on investments                                                          8.5             (1.5)
Minority interests (equity)                                                          0.1             (0.1)
Other recognised gains and losses                                                 (79.6)            (49.7)
Profit for the financial year                                                       17.5               2.9
Total recognised gains and losses                                                 (62.1)            (46.8)

Consolidated balance sheet

at 31 March 2003

                                                                                    2003              2002
                                                                                      £m                £m
Fixed assets
Intangible assets                                                                    5.3               7.4
Tangible assets                                                                     59.4              68.1
Investments in associates                                                          288.5             289.4
Investments other                                                                  255.5             316.7
                                                                                   608.7             681.6
Current assets
Stocks                                                                              20.4              21.3
Debtors                                                                             32.7              31.2
Short term deposits                                                                 43.9              61.0
Cash at bank and in hand                                                             4.6              20.2
                                                                                   101.6             133.7
Creditors falling due within one year
Short term borrowings                                                              (0.4)             (8.8)
Other creditors                                                                   (47.2)            (33.4)
                                                                                  (47.6)            (42.2)
Net current assets                                                                  54.0              91.5
Total assets less current liabilities                                              662.7             773.1
Creditors falling due after more than one year
Long term borrowings                                                               (4.9)             (5.3)
Provision for liabilities and charges
Deferred taxation                                                                  (1.4)            (29.0)
                                                                                   656.4             738.8
Minority interests
Equity                                                                             (0.6)             (0.9)
Non-equity                                                                         (0.3)                 -
                                                                                   655.5             737.9

Capital and reserves
Called up share capital                                                              4.0               4.1
Share premium account                                                                1.3               1.3
Capital redemption reserve                                                           1.2               1.1
Revaluation reserve                                                                 21.2              73.9
Profit and loss account                                                            627.8             657.5
Shareholders' funds                                                                655.5             737.9

Consolidated cash flow statement

for the year ended 31 March 2003

                                                                                    2003              2002
                                                                                      £m                £m
Net cash inflow from operating activities                                           12.4              12.3
Dividends from associates                                                            9.2               9.5
Servicing of finance
    Interest paid                                                                  (0.2)             (2.4)
    Dividends paid to minority shareholders                                        (0.2)             (1.0)
                                                                                   (0.4)             (3.4)
    UK tax paid                                                                    (5.8)             (1.3)
    Overseas tax paid                                                              (0.8)             (0.7)
                                                                                   (6.6)             (2.0)
Capital expenditure and financial investment
    Purchase of tangible fixed assets                                              (3.3)             (5.1)
    Sale of tangible fixed assets                                                    0.3               0.4
    Purchase of investments                                                       (47.7)            (39.6)
    Sale of investments                                                             35.4              83.4
                                                                                  (15.3)              39.1
Acquisitions and disposals
    Purchase of operations                                                         (0.2)             (0.1)
    Sale of operations                                                               7.0                 -
    Investment in associates                                                      (12.4)             (6.2)
    Sale of interests in associates                                                  1.1              92.0
                                                                                   (4.5)              85.7
Equity dividends paid                                                             (18.1)            (18.5)
Net cash outflow before management of liquid resources                            (23.3)             122.7

Management of liquid resources                                                      21.5            (52.0)
    Repayment of short term loans                                                      -            (22.1)
    Repayment of long term loans                                                   (0.4)             (0.2)
    Purchase of own shares                                                         (3.4)            (47.1)
    Issue of shares by subsidiary undertakings                                       0.3                 -
                                                                                   (3.5)            (69.4)
Decrease in cash in the year                                                       (5.3)               1.3

Reconciliation of net cash flows to movement in net funds
for the year ended 31 March 2003

                                                                                    2003              2002
                                                                                      £m                £m
Decrease in cash in the year                                                       (5.3)               1.3
Cash outflow from decrease in debt                                                   0.4              22.3
Cash inflow from decrease in deposits                                             (21.5)              52.0
Change in net funds resulting from cash flows                                     (26.4)              75.6
Acquisitions                                                                         4.6                 -
Exchange differences                                                               (2.1)                 -
Movement in net funds in the year                                                 (23.9)              75.6
Opening balance of net funds                                                        67.1             (8.5)
Closing balance of net funds                                                        43.2              67.1


1.  Basis of consolidation

The consolidated financial statements consolidate the results of the company and
all of its subsidiary undertakings drawn up to 31 March each year. The results
of subsidiary undertakings acquired or sold during the year are included in the
financial statements from the date of acquisition or to the date of sale.

In the company financial statements, investments in subsidiary undertakings are
stated in accordance with the 'valuation of investments' and 'income' policies
outlined below. Subsidiary undertakings include equity and loan interest
elements. Comparative figures also include subsidiary undertakings at market
value, together with loans.

Associated undertakings

In the consolidated financial statements, investments in associated undertakings
are accounted for using the equity method. The group's share of the profits and
losses of associated undertakings is included in the group profit and loss
account and the group's share of their net assets is included in the group
balance sheet. Associates are undertakings in which the group has a long term
interest and over whose operating and financial policies the group exercises
significant influence.

In the company financial statements, investments in associated undertakings are
stated in accordance with the 'valuation of investments' and 'income' policies
outlined below.

Valuation of investments

Investments are included according to the following guidelines, which have been
drawn up having regard to the British Venture Capital Association ('BVCA')

Quoted investments, for which an active market exists, are valued at mid-market

Unquoted equity investments are valued by the directors on a number of bases
depending on the nature of each investment. Early-stage investments will
generally be valued at cost, less a provision if performance is substantially
below expectations, for one year or until the investments start to earn
significant maintainable profits. Investments earning significant maintainable
profits are generally valued using an earnings muliple, based on current year
profit after tax and an earnings multiple for a comparable quoted company or
sector average. A discount will be applied to recognise the absence of a ready
market on which the holding can be sold. The liquidity discount will  normally
be 30%, but may be reduced to 10% if an initial public offering or  realisation
is imminent. For some asset-backed businesses, such as where there is a
significant property element, the earnings multiple method of valuation is
inappropriate, and a net realisable asset basis is applied. If may also be
appropriate to use the net realisable asset basis of valuation if this results
in a higher valuation than the earnings method, or the company is incurring
losses. A third party valuation, such as an independent valuation report or a
material arm's length transaction, will provide prima facie evidence of fair
value and will usually take precedence over other methods.

Unquoted fixed income shares and loan investments are valued at the lower of
cost or recoverable amount. Investments in unquoted funds are valued at the net
aset value of the fund, with an appropriate adjustment where the net asset value
has not been calculated in accordance with BVCA guidelines.

Realised surpluses or deficits on the disposal of investments are taken to the
realised capital reserve, and unrealised surpluses and deficits on the
revaluation of investments are taken to the unrealised capital reserve as
explained further below.

2.  Change in accounting policy

With effect from 31 March 2003, the company changed its accounting policy such
that it now holds equity and loan investments in subsidiary undertakings at
valuation in the company financial statements.

The effect of this change in accounting policy was to increase investments and
non-distributable reserves by £267.5m.

3.  Dividends

                                                                2003         2002         2003         2002
                                                               pence        pence           £m           £m
Interim paid                                                     8.0          7.8          5.7          5.8
Final proposed                                                  18.0         17.2         13.1         12.4
                                                                26.0         25.0         18.8         18.2

The proposed final dividend will be paid on 31 July 2003 to shareholders on the
register at the close of business on 4 July 2003.

4.  Earnings per ordinary share

Basic earnings per ordinary share was based on the profit for the financial year
of £17.5m (2002 - £2.9m) and the 72,133,756 (2002 - 75,400,648) weighted average
number of ordinary shares in issue during the year, after excluding shares held
during the year by the Caledonia Investments plc Employee Share Trust and a
subsidiary company.

The dilution in the return to ordinary shareholders arising from the dilutive
potential ordinary shares under the company's share option schemes in respect of
the current and prior years is insignificant.

Adjusted earnings per ordinary share was calculated as a measure of earnings
excluding sale of operations, amortisation of goodwill and other items, net of
related taxation. The directors consider that this provides a more consistent
indication of underlying performance. The adjusted company and consolidated
earnings per ordinary share were reconciled as follows:

                                                                                           2003          2002
                                                                                          pence         pence
Basic earnings per ordinary share                                                          24.2           3.8
Profit on sale of operations                                                              (6.8)           8.2
Restructuring costs                                                                         5.5             -
Share of associates' non-operating items                                                  (2.5)             -
Amortisation and impairment of goodwill                                                     7.9           7.4
Related taxation                                                                              -         (0.8)
Adjusted earnings per ordinary share                                                       28.3          18.6

The information in this news release does not constitute statutory accounts
within the meaning of Schedule 240 of the Companies Act 1985 (the Act). The
statutory accounts for the year ended 31 March 2003 will be delivered to the
Registrar of Companies in England and Wales in accordance with Section 242 of
the Act. The auditor has reported on those accounts; the report was unqualified
and did not contain a statement under Section 237(2) or (3) of the Act.

Copies of this statement are available at the company's registered office,
Cayzer House, 30 Buckingham Gate, London SW1E 6NN.

                      This information is provided by RNS
            The company news service from the London Stock Exchange                                 

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